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Colombia: Consumer goods and retail profile
[July 30, 2007]

Colombia: Consumer goods and retail profile


(IndustryWire Via Thomson Dialog NewsEdge) FROM THE ECONOMIST INTELLIGENCE UNIT

Profile articles provide a concise overview of an industry in a particular country. They are designed to brief senior executives on key local players, on demand and consumption, and on supply and production.

2001(a)2002(a)2003(a)2004(a)2005(a)2006(b)Retail tradeRetail sales (Ps bn)71,59375,74484,31892,337101,522111,095Retail sales (US$ m)31,12930,24129,30235,13143,73846,978(a)Retail sales volume growth (%)2.0-0.53.93.44.74.9(a)Retail sales US$ value growth (%)0.0-2.9-3.119.924.57.4(a)Clothing, cosmetics & household goodsClothing, sales value (US$ m)3,7723,9954,1384,6135,4265,712Cosmetics & toiletries, sales value (US$ m)1,1191,1171,0541,2111,5001,646Perfumes & fragrances, sales value (US$ m)126141135155191207Furniture, sales value (US$ m)1,9021,9741,9972,2372,6752,846Household cleaning products, sales value (US$ m)613600557616717759Electronic & domestic appliancesTelevision sets (stock per 1,000 population)286303280280280(b)280Television sets, sales volume ('000)168171172181190201Cable-TV subscribers (per 1,000 population)263035394348Refrigerators, sales volume ('000)422449467490516(b)544Video recorders, sales volume ('000)252525252321Washing machines, sales volume ('000)516526553589629(b)674(a) Actual. (b) Economist Intelligence Unit estimates.Source: Economist Intelligence Unit.Overview



Since being hit hard by recession in 1998-99 and stagnation in 2000-02, the retail sector has picked up in line with private consumption. Margins of large retailers in the recovery were initially held back by fierce competition and the costs of financing rapid expansion until 2005, when profits rebounded. Since the mid-1990s foreign retailers have entered the Colombian market, and this has contributed to the restructuring and modernisation of the sector, including the emergence of large supermarket chains and hypermarkets in the bigger cities. As a result, Colombia now has a modern retail sector, with most of the types of outlet seen in developed markets, although the number of department stores is still limited. More intense competition has created difficulties for some local players, but domestic outlets still dominate at the cheaper end of the market. This segment includes the informal sector, which accounts for around one-half of the retail market.

The informal sector is strongest in rural areas and small towns, whereas retail companies are focused on the large urban centres. Colombias six clearly defined regional markets are focused on these urban centres: the capital, Bogota, Cali, Medellin, Barranquilla-Cartagena, Armenia-Pereira-Manizales (the coffee region), and Bucaramanga-Cucata. Taken together, these represent more than 60% of GDP, although they account for only 40% of the total population.


Colombian manufacturers are relatively well equipped to compete with imports of clothing and textiles, but most other consumer goods are imported. Some local assembly of foreign brands of consumer durables exists and there is an expanding domestic cosmetics industry, but the share of these in total domestic sales of these items is dwarfed by imports. This dependence on imported goods leaves the retail sector vulnerable to exchange rate fluctuations. Consequently, the strength of the Colombian peso in 2003-05 has been an important contributor to the sectors improved fortunes. Consumption of durable goods has rebounded particularly strongly since 2003, as consumers have been able to take advantage of cheaper and more easily available credit, as well as the strengthening currency to replace ageing items, such as televisions, audio equipment and furniture.

Demand

Total retail expenditure is estimated at US$47bn in 2005. Compared with OECD markets, the proportion spent on items other than food, drink and tobacco is relatively small, at around 40%, because of the relatively low level of real income. Sales of non-basic consumer goods are concentrated among a small proportion of households (we estimate close to 10% of the total can be defined as high income), concentrated in the major towns. The share of demand for youth-oriented products is relatively high, owing to the countrys demographicprofile.

The size of the Colombian domestic market for consumer goods has grown rapidly in 2004-06. Two developments account for most of the improvement: personal disposable income per head (PDI per head), which was depressed by recession and currency weakness in 1998-2003, has rebounded; and growth in the availability of credit has also accelerated over the past three years. The US dollar value of PDI per head, which peaked at US$1,600 in 1997, fell by 30% between 1997 and 2003, but is now restored to 4% above its 1997 level, at US$1,700 (2006 estimate). Consumer credit growth has been accelerating since it turned positive in late 2003, reaching 40% year on year in August 2006.

Demand for white goods has been mixed over the economic cycle. In the difficult economic conditions of 1998-2002, sales of TVs declined by 4% in volume terms, but sales of refrigerators and washing machines grew by 11% and 14% respectively. During the upturn since 2003, strongest growth has been posted by products with the lowest relative penetration rates, such as personal computers (PCs), cable TV, video recorders and DVD players.

2001(a)2002(a)2003(a)2004(a)2005(a)2006(b)Nominal GDP (US$ bn)82.081.279.497.5122.6133.2Population (m)42.843.544.244.945.646.3GDP per head (US$ at PPP)6,4076,5516,8997,2567,7468,290Private consumption per head (US$)1,2511,2411,1621,3241,6211,736(b)No. of households ('000)10,29710,76111,19411,604(b)11,990(b)12,369(b)(a) Actual. (b) Economist Intelligence Unit estimates.Source: Economist Intelligence Unit.Pricing

ItemPrice (US$)% of monthly personal disposable incomeAffordability rankHand lotion, 125 ml (supermarket)1.420.9238 out of 57Lipstick, deluxe type (chain store)31.3320.3551 out of 56Men's business shirt, white (chain store)85.8555.7549 out of 56Women's shoes, town (chain store)65.3742.4541 out of 56Women's raincoat, Burberry type (chain store)566367.937 out of 40Child's jeans (chain store)16.6010.7835 out of 56Child's shoes, sportswear (chain store)52.7334.2445 out of 56Compact disc album (av)17.6111.4344 out of 56Television, colour, 66 cm (av)631409.539 out of 58Note. Affordability rank: for each country the price of an item as a percentage of monthly personal disposable income is calculated. Countries are ranked according to these percentages. The most affordable country will have the lowest percentage and be ranked first.Supplyretailing

The retail sector has undergone significant structural changes since the mid-1990s with the entry of foreign supermarket chains such as Makro (Holland) in 1996 and Carrefour (France) in 1998. This move triggered consolidation among domestic supermarkets, while other large retailers expanded rapidly, opening over 90 new outlets in the past five years.

The market share of hypermarkets or supermarkets in Colombia is much lower than the developed country average, but it is increasing rapidly at the expense of local grocery stores and small marketplaces, which have struggled to compete on price and quality. Intense price competition has led to some tensions between the larger chains and their suppliers as margins have suffered. Supermarkets are rolling out loyalty schemes for customers and have begun to offer store cards, and are displacing specialised stores in the provision of white goods and furniture.

Key playersretailing

Domestic companies, including Exito, Carulla Vivero, Carrefour and Olimpica are the largest retailers and account for 60% of the market share of supermarket sales, according to Planet Retail. Carrefour is the largest multinational retailer participating directly in the Colombian market, but other foreign companies hold major shares of the market leaders. No major US retail chains currently operate in Colombia, but there have been some indications of potential interest from Wal-Mart, in the form of registration of its brands and trademarks inColombia.

The main supermarket chains have expanded strongly in recent years, gaining market share from the smaller chains and informal retailers. The most rapidly growing chain in 2005 was Carrefour, with sales up by 49%, compared with overall retail sales growth (reported by Planet Retail) of 22%. The efforts to gain market share in the face of fierce competition have involved large investments in the expansion of outlets, constraining profits. Competition has also stimulated innovation in terms of product range and led to new alliances with domestic and foreign partners.

Casino of France and Cencosud of Chile own major shares of the market leader, Exito, and a US investment bank, Newbridge Andean Partners, holds a 35% share of the second-largest retail group, Carulla Vivero. In 1999 Exito absorbed both Cadenalco, the operator of Almacenes Ley, the countrys largest department store chain, and along with it, Pomona, a small supermarket chain serving upper income customers. In October 2006, after months of speculation, Exito launched an acquisition bid for Carulla Vivero. The bid is under review by the competition regulators. Although an Exito/Carulla-Vivero takeover, with a 20% market share, would create a company three times as large as its nearest rival, the regulators decision is hard to predict. The regulator insists that any decision will be on the basis of the impact on competition, rather than overall market share or size relative to the closest competitors. Exito argues that the move is not designed to stifle competition, but to help the company to strengthen its relatively weak position in smaller supermarkets, in outlets aimed at less wealthy households and in the north of the country.

Top retailers by retail market share, 2005CompanySales in Colombia (US$ m)Market share (%)Exito1,74813.0Carulla-Vivero9166.8Carrefour8416.3Olimpica7145.3Alkosto4583.4S
ub-total4,67734.9Other8,72665.1Total13,403100.0Source: Planet Retail.Useful web links

Carrefour: www.carrefour.com

Carulla: www.carulla.com

Exito: www.exito.com.co

Federacion Nacional de Comerciantes (Fenalco, Nacional Federation of Retailers): www.fenalco.com.co

Planet Retail: www.planetretail.net

Olimpica: www.olimpica.com.co

Supplyconsumer goods manufacturing

The domestic clothing and textiles industry, which accounts for around 2% of GDP, is well developed, export-oriented and internationally competitive, but it relies on imports of raw materials and machinery. In 2005 clothing and textiles exports reached US$1.45bn, a 7% share of total exports. The US, Venezuela, Ecuador, Germany, Peru, Brazil, Mexico and Japan are the main export markets. Exports to the US have benefited from preferential tariffs under the US Andean Trade Preference Act (ATPA), which is due to expire at the end of 2006. A Free-Trade Agreement to replace the ATPA was still awaiting ratification in November 2006. Existing preferences are expected to remain in place until the new preferences come into force.

The Colombian cosmetics and toiletries industry is a significant exporter to countries in the region, but most of the exported goods are foreign labels, and the domestic market for these products remains dominated by imports.

The PC industry is underdeveloped, and the domestic market is almost entirely dependent on imports. The PC production base is restricted to assembling by small and medium-sized companies that satisfies less than 1% of domesticdemand.

Key playersconsumer goods

Vesa, Leonisa, Crystal, Expofaro, Socks and Textiles, Didetexco and Everfit are the leading domestic clothing manufacturers. The most common domestic brands include Everfit, Hernando Trujillo, Luber, Vahler, Arturo Calle, Jhorman, and El Gran Baron. Around 3% of 8,000 garment manufacturers export apparel to other countries. Among US companies, Guess, Tommy Hilfiger, Van Heusen, Express, Dockers, Gap, Pepe and Victorias Secret are the major customers, with local manufacturing undertaken of some of their lines using their own names or through subcontractors. Other multinational companies, including Pierre Cardin (France), Guy Laroche (France), Yves Saint Laurent (France), Hugo Boss (Germany), Pepe (UK) and Benetton (Italy), either have local manufacturing operations or subcontract manufacturing to licensees.

Foreign suppliers are overwhelmingly dominant in the computer market. Hewlett-Packard (US), IBM (US), NCR (Japan), Dell (US) and Acer (Taiwan) are the leading players selling PCs. Local manufacturers are limited to assembly and account for less than 1% of the market.

Whirlpool (US), LG Electronics (South Korea), Sony (Japan) and Aiwa (Japan) are among the leading makers of white goods. Challenger, Haceb (which absorbed another leading company, Icasa, in 2005) are the most significant domestic manufacturers of refrigerators and freezers. Challenger, Haceb and some other domestic companies, including Incelt, Industrias Volmo, and Landers, also manufacture home appliances and other white goods.

Copyright 2007 Economist Intelligence Unit

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